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  CSPAN    Politics Public Policy Today    News/Business.  

    December 11, 2012
    1:00 - 6:00am EST  

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our system and say that is the foundation for higher education for those who will be innovators in the future. the harvard business school last your did a competitiveness survey. they found higher education institutions or america's greatest asset. they found one of the highest concerns of the many leaders in business that they serve it was the state of k-12 education which was seen as a huge disadvantage in american competitiveness. students who are coming to college, 43% are not ready for college in one field or another. universities need to do considerable remedial work before they can even start the students on the treasury to what a college education should be.
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how do we begin to address the challenges that this has had a number of exciting innovations? they are trying to in able research, uniting that with business school faculty that shows how you lead an organization like a school district or school. and what they can add to train educational leaders who can transform systems. this has been a popular degree. it has wonderful candidates who
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go through its. this is just one contribution our school is making and others as well. we need across the country to have a unified approach to the policy that is embedded in our k-12 system. >> we did a report last year a few months ago about china and india's investment, the rapid level in which they are investing from pre-k through college. there will have more in china and any of them the entire u.s. work force.
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we're focused on a global economy. those from harvard are competing globally with students from china, germany, brazil. tavis that transform the way we think about education? do you think your role as straining american leaders? are you looking at attracting global leaders? >> there are so many questions. let me address a few of them. there are numerous kind of statistics that we have a preeminence of college graduates in our populations and levels of participation. we are losing this. we have once last three of the world's college graduates. that is an interesting
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illustration of a shift in the dynamism. i see this when i travel. a huge commitment to public resources. huge energy to enthusiasm of higher education. india wants 1500 new universities by 2020. alicia's in a meeting about hong kong this week. i learned that hong kong university is expanding undergraduate education from three years to four years because they think it is not giving students enough time. there are all these buildings going up.
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here we are being told in the united states that maybe we should reduce ourselves from four years to three years. another aspect. let me insert here so much of what our discussion is about. with travel to india and china ever was to hear about the liberal arts. they want to introduce a broader education into their countries. they think that the ability to imagine, it to be creative, and to envision a world differently relates to understanding other places and people. these are so much a part of the humanities and social sciences. it is the whole panoply of the liberal arts. this is under tremendous pressure.
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there are recognizing this advantage. why do we want to spend our time on a broad education? we need to be very careful about this. it may have longer time to an educational system but have really important and fax in which we have not realized efficiently. >> 1 issue that has come up is the work you have done. there has been a lot of excitement as a tool to really learning a larger group of people.
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and the opportunities that abound in that space. there are some concerns it will be distracting from education. why are you engaged in this work? are you engaged? >> we are really excited about this project. we have joined women to promote and advance. it opens a number of possibilities for us. how can we use these digital technologies and learn from them to change education on our alone campus.
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what weighs will we see based on the experience of these mass courses. how can that transform in cambridge and boston. secondly, we see it as a way to get harvard ideas and harvard teaching out to a broader world and way to accumulate a lot of data that can be an extraordinary resource for anybody who like to use that material to ask questions about the nature of human learning and how it ought to be structured. on the point about spreading learning to the rest of the world, i have a very moving reaction to one bit of data. one of the pilot courses. when i was in india, i met with people in india who were
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wanting to interact with harvard. there is a need for engagement with our schools public health. we have enormous challenges in that area. i was talking to these individuals about what kind of courses we might involve them in. this online course that i described steele has overall more than 40,000 students and 9000 of them come from india. last january i was thinking how can i put people together and what programs onemight we run? this is dazzling. i would like to get a map of where they all are in india. i do know based on another conversation last week that 150
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of these people in mumbai got together last week and said we do not want to be a virtual undertaking. we want to talk with each other. there is a flash mob of epidemiologists as they came together. >> a different type of flash mob. there's so much talk about s.t.e.m. and the growing number of students.
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the market run normally are you optimistic that we'll get more and more students given harvard's experience? or is there something we should be doing more? >> of both things are true. we're seeing many more students interested in science. we're seeing the doubling of the engineer concentrators within the last three years. 29% that enter this fall were concentrated on life sciences. we have been were he on how to teach science, getting kids involved in research early.
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that is one way to get them engaged. they are engaging in persisting in science. then there are questions about how do they understand there opportunities? going back to this area a basic research, as we look at funding. how do they think about this life of going after in list uncertainty about whether the life of a researcher is possible. the average age to get the grant is 42.
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i worry about the choices they will make. we are doing a good job getting them up. we're doing a good job with ph.d training. are also questions about how they sort themselves out into careers and have a huge that region and how they use that knowledge. he asked every day about how they use that knowledge. you asked about k-12. if we do not have science teachers in k-12 some small percent actually have training. a lot of our students are going in to teach for america.
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that is a good sign. that is 20% of our senior class. >> i'm going to ask one more question and then turn it over to the audience. my last question will be on immigration. you have spoken on the need for the dream act. can you talk about that? >> what first drew my attention was my first year of president a group of students came to see me, about 12 of them. they were all undocumented. they said we want you to support the dream act. they describe to me their lives. i was just stunned by their stories of growing up usually in the southwest or the west in families where they had no idea they were undocumented. then there came a moment with the needed documentation and they realize they were not citizens. suddenly they were thrust into this awareness of a whole nother -- nether- world of
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not flying on planes to get back from vacation or not going home for vacation at all because they cannot travel are not being able to imagine medical school because they needed documentation to do that. i thought this is awful. do you come to this question as a human rights or as an economic development? both. here are these extraordinarily talented students who ought to take on the world and they worry that when a car comes near them that they are thought to be picked up and deported. i thought this is horrible. the world seems to be speaking out on the dream act now. i hope we will see real progress in this area. students are worthy of this. it is a human right for them. it is so important to have a
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welcoming immigration policy. that is what built our strength. we see the contributions of immigrants make to the innovation in economy. something like 40% of the fortune 500 companies were children of immigrants. there are all these ways in which innovation and immigration have been tight. we need to support that. >> we did a report recently that demonstrated it to be $329. -- $329 billion in advantages to our economy. a lot of that is because people would feel free to engage. with that we're going to turn
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over to questions. we have a few moments and then we will be ready for our next panel. if you could provide your name and try to make it a brief question that would be great. >> i am a sociologists. i've worked and higher education. i question has to do with finances. what are the challenges you face? in an economy with challenges, how can young people from non affluent families afford college? it would be good to hear some of your thoughts and how we can enable it. >> we look at what a variety of different institutions can do. we have made significant progress on the price of
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undergraduate education with a financial a policy we have introduced over the last decade. 60% of our undergraduates are on financial aid. society has to ask questions about what is the public nature of the educational enterprise. we have taken are strong universities and significantly reduced in their support for public higher education. if we look at our public right now, around 10% comes from the state.
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what are the implications of that for our society? i think this society ought to increase education as a public good. we have been backing off for that at a time when the competitive forces have only expanded. this greatly disadvantaged is the united states. that is part of this a question of what are the students needing to do. >> the industry is well aware that this great resource at the university.
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universities have been clobbered it to an extent. there also dangers. i wonder how harvard policy toward these arrangements with industry has evolved. he mentioned the public. they do not have the resources harvard has. what suggestions do you have for the nature and extent of cooperation? >> i see it as related to the reports. he urges that the industry must invest more in higher education. i had a conversation with him saying we are free riding a bit. i think that is terrific. i welcome the attitude. you have pointed to something important.
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one set of this has been to encourage the transitional aspects, to set up a transfer office that is much more engaged into marketable products to connect our faculty with opportunities to commercialize this more directly. then there are institutional partnerships. we need to negotiate how we move into this territory. this is a new territory for many of us. we have principles of academic freedom that we wish to sustain. industry has a need to process for its investment. we need to figure out what the overlapping is. is it buying complete control?
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i think that would be a hard one for universities to swallow. one of the things we are wondering, the property we own over the river, one of the commitments we are making is to an enterprise zone where we hope to have some private endeavors side by side, maybe even sharing harvard scientists. that creates an ecosystem of sharing and translation. you are right. there are certain aspects of contrary missions we need to resolve.
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industry needs us. >> we have time for one more question. this will be the last one. >> we have been talking a lot about s.t.e.m. this morning. your background is in the humanities. if you look at funding from the 1970's compared to funding today, proportionally if we were at the same level as it were in the '70s the budget would be over $1.2 billion. instead, the neh funding is under $150 million. what does the national disinvestment do to the humanities?
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>> i went around with a filmmaker who was at various venues. people want to talk about the ideas. it was a film about death and the civil war. i went with the filmmaker, ken burns, to antietam, new york, washington. people want to talk about these ideas. there is a huge appetite for what is war? how do we understand this? i felt this was an example vacation for me as to what the humanities can be and do. i embrace what you say. i worry about the decline in humanity concentrators even in institutions like ours.
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there are some places where the humanities are expendable when we have to constrained resources. i think we do ourselves a terrible disservice as a country. it does not focus on how to get where it needs to go but knows where it ought to be going. that is a fundamental obligation. >> a great ending to a great panel. thank you. [applause] i'm now going to invite al hunt to come up and introduces panel. in the last session i said gene sperling would be joining us after this discussion. he was in the midst of the fiscal cliff negotiations, so hopefully he will tell us how he
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is protecting these important investments. >> next, a conversation about spurring investment in the marketplace. this is hosted by the center for american progress. this is 55 minutes. >> that is a really tough act to follow. >> for sure. >> we have a challenge. i am al hunt. i am delighted to be here. let me tell you one quick story about our host. when i met neera when she was policy director for hillary clinton and barack obama, i did a column or i refer to her as the sugary ray robinson. he was a pound for pound the greatest boxers.
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she was the sugar ray robinson of policy record. everytime i see here i say "hi, sugar." >> i was wondering why you said that. >> well, when my younger reporters heard this and it to a colleague "it is just a different generation." i am sorry, sugar. >> well -- andwhat i'm glad you explained that. >> it is terrific to be here. what a great panel. glenn hutchins is the founder of silver lake. he is a tremendous asset at harvard as a great adviser. his real claim to fame is he is the part owner of the boston celtics.
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if we start to in any way need to but the more we will talk about that. jonathan teaches at the university ebbs pennsylvania. he has written 150 books. i say about pat moynihan that he had written more books than most senators have read. i am dazzled by that. ex i am getting to 150. i am not quite there yet. >> not quite there yet. >> it is only a number. >> he is also a senior adviser at the center for american progress. he's very interested in the subject.
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susan, we have to stop meeting like this. we have done more seminars. susan has been a rock star -- >> since you used to yell at me over the crossfire. >> her dad was a member from staten island. she succeeded him. >> the think it is and the only past seven years. she rose to leadership. she left a real mark. she runs google's washington office. she's always been on the cutting edge of things that really matter. let me start off by saying i do not think there is an anti- innovation caucus. i do not think there is anybody who is opposed to innovation. it is a little bit like apple pie or rg3.
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let me ask you all to describe what we really mean by innovation. what are the two or three priorities we ought to really be talking about? glenn? >> let's start on that side. >> i thought you'd start on that side. >> i go to my right first. >> there are three types of innovation. this is from the business perspective, our world. one is scientific innovation that allows the second innovation which is the technology innovation, to take the underlying discovery and commercialize its, turning it into a product that can be used for consumer customers. what is equally important is how you can then take a discovery, it turned into a
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technology, and you can deliver it in a way that allows you to build a business that gets you a margin that can support the business. basic science innovation, technology innovations, and business model innovations are the ones we think of. google is a good example of all three. i was on the board of a company [inaudible] they made describes. -- disk drives. they had about $13 billion in revenue. that revenue came from products that were 120 days below last told. -- days or less old. they have to reinvent nearly $13 billion in revenue in 120 days. these were incremental
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innovations on an understood technology. disk drives are the file drives on any technology you have. the innovation has to curb at all three levels for it to continue to deliver. one of the major reasons these devices are so small a powerful is because of the process. in storage, the rate of change is to double every nine months. the point is in the technology world to have to think about the companies. you have to think about the company's to stay ahead of the curve. >> do you want to pick up on
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this? >> not fair. >> i do not know how to innovate. i am a philosopher and historian. what strikes me about innovation -- richard virus rusesd into -- retrovi and basic medical science turned into an understanding of hiv aids. think of the internet -- it turned into the web. there is a myth about americans that we only care about innovation. -- about application. we are the most effective basic science producers in history. the founders had innovation in the dna. the articles of confederation required standards of weights and measures.
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the constitution, article one, requires standard weights and measures. the most undervalued industry is the embodiment of this requirement. we need to have government investing. the founders understood that. hamilton was in favor of prizes for innovation. some of it is about money. an open society in which we can exchange ideas. standardization. what are we talking about when we talk about a fundamental measure of a basic material that is going to be part of technology? the money is very critical.
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we have a problem with respect to an old model in the life sciences and applied sciences. this is a problem. i am on a panel for emerging technologies. advanced technology developments. this was news to me. it is not about hardware but about systems and components. industry has something to learn from what is happening in the way the defense department is mulling the development of new technologies from basic sciences. >> i have been working for google for the last eight years.
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larry and sergei were brought together to create google. private industry. google is the epitome of the with the forces come together to create what i think is an innovation now. one thing you have to learn is he wants you to have a healthy disregard for the impossible. that is something that took me quite a while to shift my brain to work that way. i want to bring back to what president faust was talking about.
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what concerns me greatly because of the house the disregard for the impossible and working with educational institutions, i have great concerns for where we're going as a country and i will give two statistics. some of the numbers i have learned -- the united states is ranked 52nd in terms of the quality of the math and science education. that's something i think we need to focus in on. we are still number-one in innovation. i do not know we can say we need to focus only on stem, though clearly we do and especially for females.
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if i thought the congress was male dominated, i'm sometimes one of the only females in the room. that's the tech industry. >> try private equity. >> i actually would like to. what i think of innovation is a healthy disregard for the impossible. that is a solid grounding we need in the younger grades. once we get to higher education, we are not in the situation. by then, it is a little late. i do think if you talk about a healthy disregard for the impossible, you need that early attitude in the grammar school
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and elementary school level in the humanities if they are going to have that healthy disregard to promote innovation. you have to learn to think outside the box. or not see the box at all. >> we want to talk about what role government can play to facilitate and not impede innovation. with the fiscal situation, how important is that to businesses and job creators to get this issue resolved, or is this indigenous washington and it doesn't affect those groups much? >> being in washington is being in a town with it healthy disregard for the possible. [laughter]
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>> i set you up for that. >> what government can and should focus on is things in their control and are important to get done. outside of government control even though it is important to get done. the most important thing right now is selling the fiscal cliff. there is nothing more important today than doing that. i have met with the president to talk about that. i am involved in this issue. everything else is waiting for
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that. there are huge market consequences if we don't get that done. now i will move on. >> if it is done -- >> necessary but not sufficient. i have never been with bain capital. [laughter] i will give you some reflection. i just came back from a week in brazil. the u.s. would have just grown faster than brazil in the most recent quarter, 2.4%. i raise this because you go down there and talk to business people about why it is. we could have made little more taxes here and a little more regulation there and cost of
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labor there and a fair amount of uncertainty about what we'll do in the future. they have taken the steam out of it. this is a fragile and requires government to facilitate rather than layer cost and uncertainty on top of it. with that uncertainty and a very aggressive regulatory agenda which has caused uncertainty around health care costs. you add that up and you have a period in which american business is operating under a huge weight. government rates the conditions where businesses and scientists can have the freedom to get the work done.
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that is an important thing to think about. government can create the conditions under which the cost is listed to allow businesses to innovate. >> if i could follow up. i thought this was amazing. u.s. firms spend 36% to comply with regulation than larger firms. that goes to the heart of the innovation story. the small startup and that is what we are looking for as we look for the next debate economic success story.
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that is the start-ups. we look at what a web presence can do. in terms of global exporting -- ideas and innovations -- the regulatory barriers have such a depressing impact on the ability to get the job done. that is something government can do. it doesn't have any impact in terms of the cost. but it produces real economic benefit. >> let me fill in the blanks. there is a clear agenda that is in front of us. i think we'll have the conditions with the fiscal cliff behind us. the first will be immigration where we can solve the whole immigration problem. people say, how do we compete with china?
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we can have the entire world at our disposal and start businesses. we do it by allowing the best people in the world to come to the united states and start businesses -- letting them come and then stay. then we have to focus on tax and the corporate tax reform to get a system that is simpler and makes it easier for businesses to compete in the world. that will be enormous. there is an infrastructure investment that needs to be made. this is important with the budget deal going forward. we have to think about what our values are. we can spend money on infrastructure to make investments in the future rather than having short-term spending. support for basic research and for higher education, as drew talked about.
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tell us what is and we can plan around it with respect to health care costs and energy costs. then it businesses can create a renaissance of american competitiveness. >> i think that is a brilliant agenda. i don't think that has changed. let's assume we go through the fiscal cliff. immigration, investments. you are not going to do a dream act. we had a chance to do it. george bush, john mccain.
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maybe the republicans learned a lesson. i covered the 1985-1986 act. they have the most skillful treasure secretary around. when its top about infrastructure spending and things we have done with nih, all the talk now is about debt. how do you do what glenn envisions? >> we are not going to get away from someone of a doomsday scenario for quite some time which would allow us to get to glenn's position.
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i do think it is importance. the priorities -- people don't have a disagreement about whether the federal government should have a role in immigration or in infrastructure. we may disagree in terms of where we want to go. there are larger conversations out there. those do divide the parties. we accept these as government rolls. -- roles. i think what glenn has talked about and how do you get there? the united states congress and the white house is very disjointed because the american public is very disjointed.
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this is a town that is responsive to what their voters tell them. there are not many congrespeople who will not do what their constituents want them to do. we would hope when it requires leadership that they rise to the location. if we get to the point of these things that need to be done, more people need to talks about it. i think it is a campaign that needs to be waged and probably in the center of both political parties to have that conversation. >> it is a lonely center. >> it needs to be talked to and explained in terms of what needs to be done.
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i do not think that is something that will happen tomorrow. political parties are scared about how tumultuous politics is. the pendulum is swinging. i think they will respond more quickly if we can get that message out there. it has been so long since we have had this discussion. we talked about the government investing in r&d and what that means. >> can i just mention? >> the whole dialogue has shifted. there has been efficient government. -- been terrible inneficient
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government. there has also been efficient government. you were in congress 20 years ago. the budget was doubled. that was a great investment. that is not part of the dialogue this year's. >> it is 19% of what was 10 years ago. tahat is the value of the nih dollar. had it not been for the doubling -- wwe tried to do science agencies, a doubling in 10 years or so, which i hope can be done. we are drifting below 2.7% as a share of gdp in science investment. the best thing is to get around 3% ideally. we are not moving in the right direction. i am a first generation american. my father got here in 1926 partly because he owned a
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patent. in austria. it was bought by a company that would become rca. he didn't have a penny in his name. this will company in ohio paid his boat ticket so he can get here. he did happen to go into that business. he became a psychiatrist. [laughter] he was part of the growth of the great american middle class. this isn't just about rich people and greeting the situations of wealth. it does lift all boats. i want to go back to the humanities. the attempted sovietization, they tried to empty out the universities of historians and philosophers and they got them
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to go west or they exile them internally in central europe. they encourage more scientists and engineers. the founders would have known this. you need the historians and philosophers to look way over the cliff to the mountains and beyond. talking about creating incentives to do -- you have to have people that are imaginative who can look beyond the current crisis.
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that has been part of the american middle class, new ideas. >> i agree with that. i would like more of an emphasis on science and math. in terms of the k through 8th grade. >> absolutely. a young physicist learning how to do problem sets started going back to the questions of uncertainty and the relativity theory and became more philosophical. if you're just doing problem sets, you are not thinking about the deeper ideas or setting the framework for thinking will be on the cliff to the future.
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>> do you have a question? >> i fear that we have a burgeoning student loan problem in our country. it is the only form of consumer debt that has increased substantially. it is by definition sub-prime, because people don't have the jobs. look at it on an apples to apples basis. you don't have to pay interest in school. a lot of the features are similar to sub-prime loans. very high default rates. i worry about kids -- i study the equivalent of the social sciences at harvard. i worry about the kids that are getting literature or courses in universes' that didn't have
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the same level of prestige and cannot get jobs after words and are repaying those student loans. it is important if you have a good idea to be able to communicate it. we need to think about people's employability and not people that went to stanford and harvard and other kinds of schools and a great conditions where they can have a personal balance sheet that allows them to prosper in their lives. >> no question about that. everybody needs to think and to write. that is what you get from a liberal arts education. penn is well
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represented, as well as harvard. >> you have the terrible squeeze. harvard does a fantastic job. a lot of private institutions, a kid will end up with $100,000 in debt. public education is cutting back. it is a terrible squeeze. >> some of the work being done to integrate and we talk about the dangers of universities and businesses getting together. one thing we can do is create the ability for the schools at all levels to teach kids things that local employers need to be employed. then teach them something about shakespeare and the constitution and make them good citizens. give them skills that allow them to support themselves in the marketplace of the future.
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>> community colleges have been an engine but we're cutting back on community colleges. >> we talk about the full range of this. support of universities. more money is better. a business person thinks less money is better. today it is cheaper to start a business because all the tools are now available on the web. we have taken the cost of innovation down enormously. there are ways in which we can reduce the costs and reach many more people and create the opportunity for kids to get the skills.
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we think education stops some time in your 20's. 40% of the work force has been unemployed for more than a year now. that is a group that needs to be re-trained in important ways. we can use -- we can do that in a much different way with more connections to industry. at the best universities, not just community colleges. >> i want to follow up. we're spending more money on education, particularly in the primary schools and yet our science and math have flat lined. we have not seen an increase.
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the kids are doing the things they have done since the 1970's. we have not matured. i'm not familiar with education x. google is studying ap classes' to see what we can do better. when we talk about education and so many of the social problems that we've talked about. there has been such a dramatic change and we've not done anything to andup end our educational system, particularly in the elementary schools to see if there are ways to use these online resources to reach more kids and to do the types of things you are talking about and to introduce them to world beyond our borders. there are ways to shake things up and to allow kids to enter world that they have never been able to enter through technology. we need to spend more time figuring out how we change that
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paradigm as we know it. how can we learn better based on what we know today? >> let me try two more. warren buffett says the tax rates did not matter as much as in other people pretend when it comes to companies and investments and innovation. i suspect you disagree. >> the buffett rule would suggests tax rolls are important. business people oftentimes say that.
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you get one level analyst beneath that. in the calculation is a whole line of things like taxes and other costs. you get different outcomes. they are not talk about. you are looking at broader conclusions. >> taxes are embedded in the analysis and people do not recognize that. we have a corporate tax code. we can get the revenue today and be able to deal with reform that is revenue neutral tomorrow. no one is talking about getting revenue from corporate taxes. a whole bunch of features of the corporate tax code which significantly influence corporate behavior. it is not about revenues. every year, something has been added. like the house you buy with three different plumbing systems. it is time to do the gut renovation. everybody talks about the cash.
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in lot of this cash is offshore -- a lot of this cash is offshore. a whole bunch of reasons why that is. it is an example of a big outcome of difference. that's not the ideal thing from a theoretical point of view. one thing, the see a lot of american companies buying foreign companies because they are using 65-cent dollars to make acquisitions. that is an example. there is a distortion that would be ideal. >> one final question. a couple of things you would like to see the government do. what other areas do you think government could do to better encourage and facilitate innovation? >> i will not talk about spending more money.
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i would like to see more investment than is in the president's budget. there is one think that government can do and our leaders have not done very well in many cases in the last 10 or 15 years and that is say good things about science. the life sciences have become a cultural flashpoint. you will not have a great economy in the 21st century -- we have a convergence of engineering and artificial intelligence that requires that we have a strong life sciences base. there has been some issue with respect to the stem cell issue that has discouraged people in the sciences and a feeling that our leadership is not saying the right things about the importance of science. >> and perhaps encouraging some young scientists to go elsewhere.
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>> there are some scientists that feel as though there may be a future in those fields. >> we have time for a number of questions. >> i want to jump in. i do think getting over the fiscal cliff, the deal getting closer to balance the budget is still very important. i do hope because of the discussion that tax reform is something that is taken seriously for this year. i think that is well overdue. there is not time to do it before december 31. it will give businesses a lot
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of assurances that the government is paying attention to what they are saying. >> you should tell barack obama to find a jim baker. >> think about each time we have reached a crisis point in our country there's been an institutional response to it. we created a central bank. that has proved to be enormous for the past five years and important for years before that. post-world war ii, we create a system and the department of homeland security. i wonder if there's not an institutional -- >> some did not work as well as others. >> that is exactly right. it reflects our values and the focus of the government. we should have a department of homeland prosperity.
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we need somebody other than the president to think about american competitiveness. something we've taken for granted because we were the premiere at economy in the world. we to reinvent ourselves -- we need to reinvent ourselves. >> we have a bunch of questions. do we have a microphone? the judgment on the end.
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>> hi. i had a question for the panel and the president of harvard. looking at demographic shifts. you are talking about innovation. the application of some of your technologies and innovation. people utilizing technology to boost their awareness whether they are musicians are using
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google or youtube. how do you see people taking advantage and that are not graduate at a high enough rate but have the ingenuity? i have covered these people to a 50 cents to a jay-z. people are forming at the wayside but present a challenge moving forward because these will be the majority of children coming out of the demographics where outcomes are not to the level of being able to apply to a harvard. >> i cannot disagree with your underlying assumption.
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we have performers who would never have been able -- performance, thinkers, people who want to provoke discussion -- would never have the platform before and now it is fair and it is not costly and it is the great equalizer from a musical or idea perspective. i think this is something that will accelerate. i do not have the answer to the equalization and education. we will discover something that allows people -- to influence,
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you have to have a channel of communication. there is a channel of communication to almost everyone in this country via cell phone. how you do it -- this conversation of communicating the way we think and how we can use our mobile devices to reach those kids that might not have the structure that we have been thinking about influencing. so i do not know the answer but i know that technology is there and somebody has to do a little more social science in terms of how to take advantage of it. i do think the future use the opportunity for us to stake their claim because we are in this era of equalization with regard to an ability to access
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information and to get the message that the world is yours and you can do it. >> that is one of my interests. we have seen this before. bing crosby was a crooner because the technology changed. there is a magnetic tape. you have to go to chicago or new york to record.
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i'm an old-fashioned guy. i still want all those kids to come to a seminar on a campus. i am teaching a course next year and i'm trying to figure
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how to get my 50-minute chunks -- 15-minute chunks. we have a question there. >> i'm carol thompson. i have a question for each of the three panelists. we have been talking about what we were hoping for the future. what are your greatest fears and greatest hopes for 2016 and 2020? it is a small question. >> i presume you don't think the world will end december 21. >> susan will not say newt gingrich will run again. >> did not come to me first on this one. >> wow, my greatest fear?
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i hope my kids are well employed. they are doing ok. they are in their 20's. my greatest fear -- i do not think about fears. i'm surrounded by so many incredible kids that i feel good. if i feel bad in the morning, i feel good after my class. >> you stole my thunder. >> i prefer the thunder over the heat. >> a couple of things. i think the fiscal situation is the opportunity between here and there. i hope we are on a course to
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have our fiscal house in order so we can create prosperity. if we haven't got it done by then, in looks like we're running out fiscal capacity. that is my greatest fear and hope. you get to see the future in the technology world and you spend your life thinking about the future. in the labs are products and services to be introduced in the future.
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we think about the future all the time and understand it is a complicated process. i went to a thing at the world economic forum and all the ceo's of major technology companies were talking about what they saw in the future. everyone was something interested in second wife and no one mentioned facebook -- second life. you cannot predict what form it will take. i hope that is what happens. some innovation that we do not expect and some innovator, a young lady trained in the great science curriculums great something. >> why don't you close it out for us?
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>> let's put aside all the other things that need to be said -- iran, north korea. the you see staff -- the easy stuff. what does keep me up in 2016 is the fact that i have seen through my lifetime women change -- the face of women change. women are the majority of graduates in most colleges. 25 years ago, they were not allowed to get in. medical schools that allow women to get to where they need to be. i see this issue that we have with young girls in math and science. i think for all the advancement we have had in becoming equals, when we get to a place where it technology rules, it will rule education.
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this is the world in which we live. we will be living with another glass ceiling that our daughters have to break through. that makes me sad for my girls and their friends. >> ending that on a positive note. >> this day today was brought to buy neera, susan, and the president of harvard, all females. >> my wife let me keep my name. i want to thank all of you. everyone has been terrific. we get to serve as advance people for gene sperling. thank you. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> i want to thank al hunt and the phenomenal panel. it is my great privilege to introduce gene sperling, the director of the white house
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national economic council. gene also is a former senior fellow at the center for american progress where he wrote and he talked a great deal about the connections between innovation, education, insuring that we have an economy that works for everyone. having served in the administration with gene, there is no one in the administration that is more focused on america's long-term competitiveness, not short-term competitiveness, midterm competitiveness. when the president is talking about these issues, china now are important to him -- which are important to him, to the people better dreaming about being the next generation of innovators, gene talks about the policies that can help achieve that from higher education, k-12. maybe not the best term for insuring our children are
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achieving their dreams. gene has been focused on that set of issues like no others. he did work on the education of girls around the world and has written extensively about education here in the united states. he
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is in masked -- enmeshed about the talks about the fiscal cliff. with that, gene sperling. [applause] >> thank you very much, neera. it is intimidating to have followed your panel. i like to be the first person and the panel says, "gene sperling says --" the president of harvard and glenn hutchins and susan
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molinari, who is down at google and partners with my life on issues of child trafficking. a special place in our home. i know a lot has already been said. i have been herded so i don't know if i'll be repeating it. i like to start by just reminding ourselves what is our end goal for economic policy because you hear a lot metrics on productivity and growth as it those were the ends in themselves. are we a nation in which the accident of your birth is not
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overly to determine the outcome of your life where there is a real chance for everybody to rise? are we an economy where growth strengthens? are we an economy and a country where people who work hard and take responsibility for their lives can work with dignity, raised her children with
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dignity, and retire with dignity? those are our ultimate goals. innovation can be defined in many ways. the commitment to combined technology and skills and other inputs to have better methods for higher productivity. a commitment to fdr-like experimentation and investing in the building blocks that laid the foundation for research, modern infrastructure. in the end, the white i believe we have to look at it is it is a commitment that we want to
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embrace and make sure it works in a way that furthers not works against those basic values. innovation, change, productivity leads to hollowing out the middle class but it does not meet our goals as a country, to be a country of shared prosperity and a broad middle class. my view and in the book i wrote back when an president obama's view that you need to be embracing change but shaping changed so that it is meetingit
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progressive values that we talked about. i think the president well knows that we cannot assume that that type of push towards technology will automatically lead to the type of shared growth we want, that there is potential to have those type of changes lead to winner-take-all outcomes that are not consistent with shared prosperity and an economy and growth built to last. our question is not how we put the brakes on but how we put the engine on innovation and change but we do so with the ultimate issue of whether it is
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promoting these fundamental ends of a shared prosperity and a more inclusive middle class. the issue of progressive taxation is not at all irrelevant to this. the economy is capable of having more winner-take-all outcomes. it is not about populism or redistribution or punishing success in any way. it is about a commitment to pay it forward. those who left benefited most from the innovation of the past have an obligation to pay for work to make sure that we are giving this generation the same
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building blocks in terms of education research so that they have the same chance to grow and prosper. in that sense, paying down deficits will still investing in the building blocks is about investing in a richer and more prosperous future. and i think that is the overall frame that we go forward. there has been a greater belief that we do have to embrace change. that the processes of technology and globalization are not things to be stopped but things to be shaped toward the progressive values we hold dear.
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you are essentially talking about a commitment to the evidence and accountability. part of having innovation is an ability to test what is working and being able to marshal the forces from technology to different designs to make sure you have a better outcome. this is another place where progressives should lead and not be fearful. that view of evaluation is behind the president's race to the top and proposals like home visits by nurses for at risk children. these are based on a strong evaluation of what is working and a commitment to put more resources behind innovation and test that innovation for results. i do think when we call for more accountability and valuation, it is important that would lead and that we do not allow programs that are for poor children to some now become the victims of a double higher standard. i have seen this too many times. when a strategy for cancer goes awry, people say let's evaluate it and let's do it better in the future. they don't say the idea of trying to cure cancer is a waste of money.
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there are times when people evaluate investments that help our poorest children. of our biggest problems dealing with young people rescued from trafficking. these are difficult problems. we should see what works. we should insist there is not a double standard so if a single evaluation somehow shows a strategy is not worked well, that that is a motivation to do things better and smarter. i think we need to be for change accountability but not a tougher hire double standard when it comes to young people from the most disadvantaged and troubled environments. there is so much to talk about. in an area we have been talking about on the skilled work force or how much there is a skill gap, i think this is a critical issue. i think that for us to have clear policies, we need to do a little better in clearly defining the challenge. first of all, i don't think there is any question that the main reason we are having
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higher unemployment right now is not structural. it is fundamentally cyclical, fundamentally the lack of demand that is still in our economy as we recover from the great recession. that said, that awareness, that recognition that ben bernanke and former cea lazear should not undermine that we face temporary or futures skills gaps but there is three reasons we should be focused on this. number one, even the unemployment today that is fundamentally about cyclical demand can easily become the next structural skills problem of the future. we know that one of the challenges we face right now in our economy is not just lowering unemployment, but lower and long-term unemployment, and that if we allow regions of our fellow citizens to stay
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unemployed for year or two years or longer, we know from study after study that they will have more trouble establishing a skill going forward. there will be a crisis for us in the country, but we will also be sitting by and letting a new structural skills gap expand because we're not taking enough
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efforts right now to get people back to work and deal with long- term unemployment. secondly, there's clearly some immediate still a gap issues. you hear it in wilders, engineers, and we should be focused on that. third and perhaps most importantly, the long-term issue, which is really more, since we're talking about the future -- it is less of the current skill set and more of a supply-side issue. we should believe that if we have a large enough supply of skilled workers in the field of dreams notion that if we have the degree of skilled workers, it will help location of jobs to come here and we will be more of a magnet for the high skilled jobs of the future. i think that when we are looking at this, though, we should in our policy solutions make sure we are defining policies right said that we are
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having the right solutions. sometimes when people say "skill gaps, close to what they're talking about the absolute top of the top engineers and physicians. those people we talk about helping to address right now with high skilled immigration, others are talking about the supply of stem workers in our country -- science, technology, engineering, and mathematical workers and our country. sometimes they are talking about skill gaps where there is not enough to restore connection between how we do worker training and skills that are open in particular areas. all three of those are important skill gaps or skill issues, but they do not take with them the same policy solutions, and as we move forward, i believe that places
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like cap and others can help us to define which issues on the policies that address them. i suggest that we will be strong as one we have the larger skills comeback. many people come from silicon valley and talk to us about the need for high skilled immigration, and i agree. we do need to do more on high skilled immigration. the president agrees. but it is a stronger case to make that to the american
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people if that is one component of the strategy. one, not just of a comprehensive immigration strategy, but one component of a larger skills strategy which also talks about how we can increase the number of skilled workers coming from our country, u.s. schools, u.s. workforces. that is the skills contact at the country could easily get behind and support. that is highly important as we think of the skills issue going forward. some of the issues i heard talked about before critical to that as well. what are we doing in the pipeline?
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what are we doing from the earliest ages to make sure that under-represented groups are taking to science? why do we have to drop off at middle school around young women? what are the long-term strategy is? we have to attack this on all cylinders and have and all of the above the strategy. but while we are doing the long-term strategy to have a bit of supply of stem and high skilled workers, we should not take our eye off what we can do in the short term. one of the most powerful statistics that came out of the president's science and technology council was the idea that you could have a significant effect on the number of workers we had if you just ensured that you had a higher graduation rate among those who declared a stem major
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in their freshman year. taking up from 40% to 60% would have a significant impact, and that is not about 20 years from now. that is about two or three years from now. we can attack this on the short term and long term. second issue on innovation, very important to us and this president, is on the overall issue of research, basic research. i think this is a critical issue for us. we as a country have long been committed to having a strong research agenda, and we know that the areas where the private sector will underperform is on basic research and blue sky research. that is where nih and others have come in. to push my head into the budget issues for one second, i think there are a lot of people who
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come to talk to us at the white house who say, "i care deeply about whether you are doing enough on energy and manufacturing and research, deeply about whether he will help nih push us to the next frontiers of alzheimer's and other important biomedical research," and then say, "it is not really my business, i am not a budget%, to worry about whether we are pending on our discretionary budget." what i have to say to folks is that you cannot pretend you care deeply about innovation and research and investing in early childhood and investing in science and stem education if you are indifferent to whether or not we reduce our budget deficit by simply taking deeper and deeper cuts in domestic discretionary budget. at some point you skip to a point where you are simply trading off between early to
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childhood and biomedical research and higher education. those are not trade-offs the american public wants us to make. when we talk about getting our fiscal discipline, our fiscal house in order, i want to remind people that when i was here in the early 1990's, one of the clarion calls, one of the reasons people make that case, was that if we had expanding deficits, it wasn't just that we would crowd out private capital. it was that we would crowd out public investment in the future, in children come in modern infrastructure, and innovation. when we decide we agree to cut spending, which we need to as but in larger deficit reduction. those of you who care about innovation need to care about how you cut, how you do
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spending. we have cut domestic discretionary spending to its lowest levels since the eisenhower administration. that is something the president felt was necessary in these extraordinary times. but to cut another 10% or 15% will make the proposals being suggested here a moot point. i flag that for everyone. the third issue i will talk about before closing its manufacturing. this administration has made manufacturing a priority, and we are very aware that when you focus on manufacturing, there are some who will take a more classical view and economic view and say that you cannot
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have a preference, or you cannot care more about any particular part of the economy, because then you're picking winners and losers, you're putting distortion. deadweight loss on the economy. i want to make the economic case for why that is not right. let's consider research and development. research and development is an area where there is strong bipartisan support and significance spillover benefits that go beyond the particular company doing research and development. we support our universities to do basic research, we skip the
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r&d tax credit to our companies, because we believe there is a benefit in innovation and growth that happens to our economy when that happens here that goes beyond the specific benefits of the individual company. i think that manufacturing for us done right, done smart, has that same justification. number one, manufacturing does punch above its weight. 90% of patents, 70% of private- sector research, 60% of exports come from manufacturing. secondly, location matters. studies show that when a major manufacturing plant comes into an area, the productivity of the nearby manufacturing also goes a lot. there are positive supply chain and ecosystem impacts that, again, go beyond the particular company. we have papers on this, but for
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those who take more than the knee jerk and view on the stresses of manufacturing as a distortionary policy, you should look at the research that suggests that location does matter, and it is right for public policy to have more manufacturing locations in the united states. notice how many companies are moving their production and design specialists together, on the same floor. why? they think it matters. bell labs, they think it matters to have production and design together, that there is a great benefit. the second point, which the professor from harvard makes so well, is that when you have an overall supply chain in manufacturing, when you suffer a period where that manufacturing base is eroding, it is not just a temporary thing. it affects our ability to compete for the high level project. there an example is consumer electronics, where it might seem that one point that it was not such a terrible thing consumer electronics were produced somewhere else with lower-cost
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labor. what they argue is that it diverted our ability to compete for the consumer electronics of the future. that test case for letting your manufacturing base become eroded, we can feel positive that what happened with autos was the opposite side. the fact that the american automobile industry was save or help to save itself or helped by president obama and the workers and the people there is obviously part of the manufacturing success story in the united states now. it may have saved over 1 million jobs. but i think it's got very important for the future. nobody doubts that the united states automobile industry is in a position to compete for the future jobs, which would not have happened had we let the entire supply chain become eroded. i thought one of the most significant quotes was from alan mulally at ford, because anything anybody with been taught in their macro- or microeconomic class would have been that if you have three main competitors, and two of them went out of business, the one standing would have been stronger. they would be taking more market share, would be more powerful and broader. it is striking and that ford motor co. ceo alan mulally said at the time, "we believe that if gm and chrysler would have gone into free-fall bankruptcy, they would have taken the supply base down and the industry down and turn the u.s. recession into a depression." that is the teaching moment about the power of the overall innovative skill said, the supply chain, and what that means for our capacity to compete when the company that would have been left standing thought they might have gone down as well.
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there is so much to say. i wanted to make these viewpoints, overall perspective, talk about manufacturing and research and skills, and i'm very happy to take your questions going forward. [applause] >> i think we have time for a few questions. i will call on people. if you could wait until he comes around with the microphone. >> thank you. aig investments. my question goes to innovation funds, which you brought out. at what stage are you focusing on with respect to either expansion or start-ups? on an execution basis, what is the regional plan as far as national strategy? >> look, i think for those of us in a government job, where you want to be like the classic economic book is you want to look for where we are under-
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investing as a country or where we have too little capital as a country calling to the private sector enterprises, where because of individual private actors do not feel they get the full benefit from those investments, but we as a country would be richer if there was more investment in those areas. one of the things we are trying to look at is -- the expression is where are the valleys of death, where are those places for innovative processes where they are not able to get the capitals to become one of the fast-growing companies? the hard part of the government level is you have to ask, is it a valley of death because it should be a valley of death? because it does not make sense for the private or public sector to be investing in companies
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like that? or is it a case where there really is a market failure, where it may not make sense for particular venture funds to invest in certain companies, but if we had a broader investment, some would prosper and we as a country would be better off? that is where you look for the type of tools you have with the sbic and other tools to see are there areas where it makes sense, where we as a country may be care more about how many small manufacturers have a chance to grow and expand, and even if there is a risk aversion in the capital markets, or it is not just the trend of the day, there is a strong enough public purpose for us to go in there. that is something we take very seriously and are having discussions with karen mills and the treasury department about. we will be around for four more years, and we are open and eager to get suggestions.
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i would say that on a regional strategy, one of the very strong initiatives the president did forward was his national innovation proposal, and my thought was interesting there was that we propose to $1 billion so that we could do 15 or 20, and when it did not look like the congress was going to pass that, the president said to us, "can you pull together enough money in the federal government to do 1 pilot?" we passed the hat and did $45 million. when we put the proposal forward, we received 13 partnerships. tremendous cooperation. we were only able to award one. it went to a collaboration in
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youngstown, where the partners included not just case western, but carnegie-mellon. it's the excitement about that, and the excitement that you are doing something regional, where you have pennsylvania, ohio, and the west built stream together instead of the way things typically are, where it is a particular state or city looking for that. we have seen there is enough interest at 13 partnerships would apply for that. that shows the promise of the
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strategy, which has been used in germany, of the national manufacturing innovation hubs. that is something we will to promote in a second term and expand further. >> over here. >> thank you. every child matters. i applaud you for your comments about the need not to have less having money for children versus money for research and other vital needs in the domestic discretionary budget. the question is, where do we find more revenue? and have you considered taxes on stock transfers and stock transactions or other kinds of innovative -- carbon taxes, other kinds of approaches where we can find new revenue that it would be possible for us to have amongst ourselves for
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important resources? >> it is going to shock you to know that i'm not here to make news on a new revenues. [laughter] we are busy fighting right now to make sure that we have a budget agreement that is very balanced, and part of that balance is having enough high income revenues together with smart entitlement savings. that is the balance that people talk about the most. the other balances to make sure that you are putting together a package that does not handcuff us not only from creating jobs in the short term, but long- term investments. one of the things that i would stresses that you don't want to go further in debt reduction in the way that the house republican budget does, which is another $1 trillion in steep cuts in the areas of our
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government where we fund early childhood, biomedical research, where we fund the national science foundation, and so many of the other drivers of innovation and economic growth. i do think that the challenge for us as a country going forward is in repairing the damage that was done fiscally from the great recession, that we give people confidence that we're bringing down our debt and deficit as percentage of the economy and giving people more confidence in long-term investments here. at the same time, we do not starve so much of what has been a part of america's history, our willingness to invest in the future, and that includes
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children, poor children, modern infrastructure, basic and blue sky research. when we get beyond the challenge we face over these next few weeks, i think that is going to be a broader challenge we face over the next decade. >> i think we have time for one more question. over here. as the question is coming, i want to say how much we support the president in this fight on ensuring the balance, and the president has been very strong on that issue. >> richard singer. we are a biomedical company that helps nurses and doctors collaborate better with social media. we got a small amount of the innovation funding, but it is a
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broader question about the health care ecosystem. if the company goes under, all the software engineers get new jobs in a matter of weeks. but in biotech, we have a lot of people with ph.d.s, longer- term and specialized types of areas, and we don't seem to have the same kind of resilience. it seems that part of that valley of death is part of the issue of the ecosystem. you hear about mobile help companies that are having trouble getting off the ground and getting things quick enough because part of the valley of death is the regulation and the telecom regulations coming together on these new types of things. i'm wondering if you could compare and contrast and about how we foster a more vibrant
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amelioration of the valley of death for biomedical, since we have such a pristine asset in this country. >> let me make a couple of points. number one, as you mentioned health care, i feel obligated to say that there is probably few areas where innovation is going to be more important than health care. one of the points that the president makes repeatedly is that the only good solution in dealing with our health care challenge is doing things that lower health care expenditures while increasing health the value that people receive. other things you do or cutting the cost shifting. there are even raising costs to try to lower what is on the federal books. but the thing that is best for our country is if we have the type of innovation and continue to push the type of innovation that lowers health care spending that just because you're caught shifting but that you are showing you are getting better value it at a better cost. as long as there is the understandable focus on what entitlement savings will be part of the long-term budget, making sure that we're doing everything we can to expand and test and in ave with some of the reforms that are in the affordable care act, i hope the focus going forward. we have gone through a political period where there was stress on
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would survive, would it not survive. now that we're past that and we know these simple law of the land, there is so much to gain not just from a bipartisan effort, but an effort through the entire expert and health community to look at which of these reforms are working, which of these innovations are working, because this is the true answer to our long-term health challenge. when i left government last time, there were 40 million people on medicare. in 2020, there will be 64 million. you cannot repeal the retirement of the baby boom era. you cannot repeal that, and you do not want to provide less to people who of work hard their whole life. the ultimate goal must be this type of innovation on health care. on biotechnology, i cannot give you a specific answer other than to say that there is a growing recognition that when you looking for areas of promise in the united states over the next 10, 20 years, there is
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enormous promise in this area, not just -- most importantly, what it means for health and life outcomes, for our economy, jobs, entrepreneurship. this is an area we'll looking closely at, and an area where ideas where negative, valley of death in terms of capital -- for people listening, that does not actually mean a valley of death. [laughter] it means you get to a certain point in the formation of your company where you cannot get the financing you need. that is an area we should be looking closely at, but with the appropriate rigor. >> thank you so much, gene, for ending a great day. [applause] i want to thank susan molinari and yourself on a great partnership with google and harvard for a day that i hope will stimulate people and remind them of the importance of the investments. thank you. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]
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hearingok forward to when you have to share with us today. the podium is yours. [applause] >> thank you and good afternoon. it is our real honor to be invited to speak to this great club of yours, especially in front of such a distinguished audience today. it is a pleasure to be introduced by roger because we were deputy central bank governors together and it is deputies who make the world around but richard loewy i will never forget in this dark and terrible moments after the
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attacks on new york in september 2011 -- we negotiated an operation that allow the financial system to keep operating based on trust. and if that demonstrated nothing it showed that the central bank posey oppression is alive and well and the world can exist without lawyers. [laughter] the most important thing is i know my pension is safe with roger in charge. 30 years ago, ben bernanke and i had adjoining offices at mit. whenever imagined that 30 years later we would be colleagues with central bank governors and even if we had, we would never have believed that the industrialized world would have faced an economic and financial crisis on a par with the
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problems seen in the 1930's. as young men, we believed that economics whether it was keynesian economics are -- many of those problems were in the past. we were wrong. to be fair, the worst problems of the 1930's were avoided this time around because of the stimulatory policies injected into the world economy by central banks and governments around the world, although it is said that the recovery of a durable kind is proving elusive. what can and should be done? i want to say a few words about my own economy and then to say a few words about the contrast between the u.k. and the united states which i think is revealing, and some world's about -- words about challenges facing the world economy which
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is more important than those facing individual countries alone. the united kingdom was hit very badly by the financial crisis. total gdp fell by 6% between the peak at the beginning of 2008 and the trough in the second quarter of 2009. output still remains 3% below the peak level. and more than 15% below levels that output would have reached have the long run average growth rate merely continued. on top of that, the inflation rate has been a 2% target. and in the wake of the financial crisis, the budget deficit reached a level of 11% of gdp, a good part of that being structural. we have serious problems to contend with when trying to put
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in place an economic recovery program in 2009-2010. it was clear at that point that the u.k. needed a major rebalancing of our economy. the shift of spending away from consumption, private and public and toward the net exports whether exports or production to compete with imports. the strategy adopted in 2007 had two main pillars. to put in place a plan that would eliminate the structural budget deficit as it appeared at the time, over the lifetime of a parliament five years but with r that the automatic stabilizers would operate. if growth turned out to be weaker than the central path that was expected, revenues
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would fall, expenditures would be higher, and the deficit would take the strain. fiscal consolidation plan was central to the u.k. recovery objective and at the time, at the spring of 2010, 10-year interest rates on government loans were exactly the same at 4% a year in the u.k., spain, and italy. today the four rates are very different. ours has fallen markedly. rates have come in a great deal. i was -- that was the first pillar. the second is that policy would provide the vehicle for accommodating the stimulus to the economy. fiscal policy would be a head wind in terms of the movement of total demand. monetary policy would be accommodative and more importantly, would accommodate
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the sharp fall in the sterling exchange rate which had taken place between the end of 2007 and the beginning of 2009. that was a 25% fall in the average effective exchange rates of sterling against other currencies. the biggest since the second world war. and the monetary policy was to make sure that that gain in competitiveness was retained by ensuring that domestically generated inflation would remain stable. these pillars were thought to be consistent with the gradual recovery of the economy. what happened was we did not get a gradual recovery. we saw output being broadly flat over the past 2.5 years. it has been a zigzag pattern. we have had the excitement of the olympic games in britain and the queen's diamond jubilee. the bids you have not been
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blessed with but it has created a zigzag pattern of quarterly rates being up and down. look through that and we see is a picture of a broadly flat output. we have not seen the recovery you have seen in the united states, so why is that? what has happened that was unexpected 2 1/2 years ago? one factor has been a very short pickup in world energy and commodity prices. over the past two years, it meant that although domestically generated inflation was held down ad stable levels, cpi inflation rose as the impacts of the depreciation of sterling, higher world energy and commodity prices fed through and inflation reached over 5%, 15 months ago. that led to the august squeeze in real take-home pay since the and that suppressed the
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recovery in consumer spending. and even more important factor has been the intensification of the problems in the deerow area. they picked up in the summer of 2011 and the impact on the u.k. in three ways. first a slowing in exports to the euro area. whereas the depreciation was effective in stimulating exports of goods to the rest of the world, exports have fallen back. the problems go further than that. our major banks are significantly exposed to the euro area. not so much in terms of holdings of sovereign debt but in terms of exposure on loan books to the real economy in the euro area periphery. that means that when those problems become apparently more serious, investors around the world, whether money market funds or insurance companies or anyone else providing finance to our banking system, the interest
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rates at which they're willing to lend to our banks go up and our funding -- costs rose after the middle of 2011. and this costs inevitably feed through to higher interest rates charged to u.k. domestic borrowers whether households are companies. the third consequence of problems, the most significant is the uncertainty generated by it. hard to know what is going to happen in the euro area. hard to judge over five or 10 years. often so relevant for business investment decisions. what i called a black cloud of uncertainty has drifted across the channel from the continent and covered our business sector with and certainly that has diminished a recovery in investment spending.
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these three factors have been a major impact on the u.k., and have lent to as i said flat output rather than a recovery. so what now? the first factor, the squeeze on real take-home pay should diminish. hard to see why a central view would be that we would see a repeat of further large increases in world energy and commodity prices. it could happen. certainly i do not think i am suggesting will see the rise that did take place going to reverse but whether we will seek further sharp rises is perhaps not the central view and that may stimulate some pickup in consumer spending. the problem is where the -- there is no easy resolution. what can the bank of england do? there are three things that we're doing. in parallel with the fed is
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doing, we have engaged in a program of asset purchases. we do that with a very explicit aim of trying to prevent what would otherwise be a damaging contraction in the money supply. in the broad money supply. where are boosting initially the narrow money supply, that has a one-to-one impact on the broad money-supply in order to share -- ensure we do not see the kind of contraction that characterized the united states in the 1930's and is characterized greece today. the program of 375 billion pounds is 0.25 of an annual nominal gdp flow. a lot of money. bront money is now expanding at over 5% and we will see the impact of that on demand later in 2013. the second action the bank has
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taken to provide a breathing space before these broad macroeconomic factors feedthrough is to introduce what we call a funding for lending scheme. a special scheme started on the first of august under which the bank of england, with the garden -- guarantee of the governor because this is a cause i-fiscal action, would provide four-year financing for banks to enable them to increase lending to the real economy or at the least, to contract lending to the real economy by less than they would otherwise have done. we will lend to banks according to how much they are expanding their own net lending to the real economy and the more they expand their net lending, the lower the interest rate which will charge on loans to them. there is a powerful financial incentive built into this funding for lending scheme to persuade banks into expanding their lending. we're confident it will feed
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through especially to the mortgage market during 2013. the final factor is to look once again at the banking system. in the autumn of 2008, the united kingdom did lead the way in arguing that the problems facing the financial system were not those of liquidity. there were liquidity problems but they were symptoms of a wider problem of solvency. the bank simply did not have enough capital. we recapitalized our banking system, the united states did likewise. we did not do enough and go as far as we should have. we think that given the concerns about the euro area, our regulators, the fsa have capital -- calculated the buffers needed to provide that buffer against the stresses that could arise in the euro area.
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our concern as expressed in our financial policy committee of the bank and -- of england, is that these levels of capital of present are overstated. overstated for three reasons. our banks have not taken adequate account of expected losses on their loan books, particularly in respect of commercial property. second and highly topical, the cost of regulatory redress is higher than what had been expected and our banks need to make greater provisions for the cost of regulatory redressed bread -- whether in the form of financial compensation to customers and the risk weights some of our banks are using are inadequately, insufficiently prudent. we recommended to the fsa they ensure the bank's examine their balance sheets and, with an estimate of how much their
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current capital is overstated because of these three reasons. and they then either issue new capital or raise contingent capital, or otherwise restructure their exposures without diminishing their lending to the real economy, to assure the have the buffers which the fnc believed to be necessary in order to meet the potential stresses from the rural area. -- euro area. there's nothing in super bowl about the need to draw banks to raise somewhat more capital but memorable though they are the have to be done. there is behind all this problem which all central banks are facing and central banks have pursued the same strategy of trying to insure their banking systems are capitalized, a flooring interest-rate 0 and expanding their balance sheets. the problem will face is what i
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have fought the paradox of policy. what made -- seems to be the right thing to do in the short term to maintain support for aggregate demand is the opposite of what we know we need to do in the long term? the u.k. does need to see a slowing of consumer spending on government spending and a switch to net exports and business investment. we need to raise our national saving ratio. we need to reduce our trade deficit. we need to reduce our overall debt levels. in the short run, a headlong rush to achieve these objectives with the to a weaker economy but in the long run, we need to make these adjustments. the big challenge facing monetary policy is to work out at what point would be sensible to switch policy from focusing on the short-term to supporting the long run adjustment that is needed? we in the u.k. and i believe the world economy more generally needs to move to a new
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equilibrium position. let me briefly mention three differences between the u.k. and the u.s. which illustrate not so much the differences of policy response that we have engaged in because in many ways they're similar but illustrate differences in the nature of the economies and the problems thrown up by the crisis. the first difference is simply the size of the banking system. on the eve of the financial crisis, the total assets of banks in the u.s. barely touched 100% of annual gdp. in the u.k., the assets for over 500% of gdp. almost at levels of switzerland and ireland if not the heady heights of iceland but nevertheless, the consequence of that is the impact on the public finances of the need to recapitalize our banks and deal with the consequences of the
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banking crisis were more severe and secondly, and this is perhaps the most important part, the impetus from the leveraging of our banking system for more heavily on the willingness of our banking system to supply credit to the domestic economy. a serious engaging in attempt in the u.k. and internationally to rid the world of the problem of too important to phil, what -- to fail, what some called too big to fail. we do not have the energy to write regulations the same length as dodd-frank's, but we are intent on putting in place a fence around those activities that are crucial to the operation of our domestic economy, retail deposits, the
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payment system, and finance a small business and those are forms which are recommended by our independent commission on banking and will be introduced in retz's -- legislation in a few months. i would be happy to answer questions on that after the tour but let me move on to the second difference between the u.k. and u.s. which is the housing market. here are the interesting factors that your problems were much worse than ours. before the crisis, both countries, or rapid rise of house prices which went to record levels relative to household income. my own view is that the cause of this was the secular decline in long time -- long-term interest rates which have the inevitable consequence that inflation not -- that rates rose. the other factor was that you
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had a major construction boom. your people responded to this incentive to build more houses and housing starts went up by 40%. nowhere near as much as the getty experience in ireland and spain of an increase of 140%. quite a large boom. leading to a large expansion of the housing stock. we did none of that. our laws came to our rescue whereas your housing starts went up by 40%. that meant after the crisis we did not see the fall in house prices that we experienced here. ours was a fall of 10% to 15%. we have to wait for the housing market to continue.
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i do not claim this was a result of virtue but it was an inadvertent result of our strict planning laws but have been a valuable antidote because we have seen the large unemployment that secured in a number of countries that followed the sharp contraction of the sector. that was the third main difference is that the united kingdom is a much more economy -- open economy than that of the united states. we're much more exposed to listener -- international trade and the euro area. that has meant that although we have been successful in keeping domestically generated inflation under control, wage inflation has been 2% a year for some time now. nevertheless, cpi inflation has risen and we can only wish that we have experienced your experience with the movement of natural gas prices and domestic energy prices. had the u.k. experienced the
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pattern, the average level of take-home pay would be what 1.5% higher than it is with the consequential impact on consumer spending. one of the reasons why our economy has been slower. there is differences -- those differences are interesting but they pale by income -- contrast to the challenges that the world economy faces. your economy and my need to rebalance, but the need to balance is not confined to those countries which previously have large trade deficits. are the laws of -- . . this contrasts between the surplus and deficit countries as a problem over showing us all. it is not a new problem. it was a problem discussed at
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length at bretton woods. we have not found a solution to it cents. the nearest we came was after the collapse of the fixed exchange-rate system when the industrialized countries of the world, parlay the g-7 put in place a regime in which the domestic policy would focus on price stability and the convention was that unless there was unanimous agreement on exchange-rate intervention, exchange rates would float and move as the wood in order to eliminate the buildup of imbalances. -- dawood in order to eliminate the buildup of imbalances. their entry into the world trading system combined with a wish to export surpluses as part of their strategy for development. back in the 1960's, there was a british member of parliament who ran on the slogan, "i want to see a world where every country can have a balance of trade surplus."
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[laughter] believe that are not, since he was affiliated to one of the major parties he was elected. but sadly, that political deceit does not help us today. the pressures on deficit countries are in exorable because they're the ones that builds of debt and they are having to adjust. many of them show great reluctance to expand domestic spending to allow the deficit countries to rebalance. nowhere is the scene more vividly than in the euro area or the mirror image of the deficits in other parts. this is a problem which has to be tackled. the g-20 in 2009 came together at the london summit and agreed the easy part which was stimulatory policies were every country could agree.
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the g-20 has gone backwards since then and there is no agreement on the need for working together to achieve some element of rebalancing the world economy. again, these challenges are manageable. manageable challenges are managed if action is taken. there is a need to do this today. otherwise, my concern is in 2013, we will see is the growth of actively managed exchange rates as an alternative to the use of monetary policy. interest rates at low levels with balance sheets having expended a great deal and with the inability to postpone the adjustment that is required to bring about the rebalancing. some of the mechanism will be needed and you can see month by month with the addition of countries that feel that exchange rate management. the need to push it down is
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growing. and finally we face a broader challenge. a challenge to defend the market economy in the face of concerns among some any who suffered during the financial crisis. this was expressed memorably by william martin when he spoke to this club lyon 1957. the golden anniversary of the club at the time and he talked about the need to support the legitimacy of a market economy and i would add to that the need to slow the march of special interests and the growth of lobbying. all of these things are sustaining the anger of ordinary people who feel they are the people who have borne the costs of the financial crisis but they did not benefit from the upturn before hand. and he wrote, "men began to question whether the merriment was worth the misery, especially
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when the misery was worst among the millions who would never -- had never got in on the merrymaking in the first place." we need to remember those words and ensure that whatever else we do, the market economy is seen to be perceived by opportunities and a sense of fairness. no country has done more to stimulate economic thinking about how we get out of this crisis than the united states. as roger said, i came to the united states 40 years ago as a cannady scholar. -- kennedy scholar. i came to pay tribute to the united states and the financial community that is leading the way out of our predicament and to the federal reserve and my colleagues on the federal reserve who have done much of the heavy lifting in getting us out of this crisis. as a tribute to president
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kennedy, the british prime minister said, his eyes were on the horizon but his feet were on the ground. there cannot be any better inspiration to a central bank today than those words. thank you. [applause] >> thank you for those inspirational and insightful words. now he will be questioned by two of our members, glenn hubbard and abbey joseph cohen. if any of you should have any
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questions, you can e-mail them to questions@econclubny.org, and our president, jan hopkins, will read them. the first question is yours. >> let me thank you again on behalf of the members here and our guests for what i thought was an extraordinary presentation done in a very short time. thank you. it was a command performance. [applause] in a prepared remarks she spent a good deal of time reviewing the macro-economic environment in the u.k. and one of the topics you touched on was the relationship between the u.k. economy and that of the you. with the eu presenting several challenges both in terms of aggregate demand but also in terms of some of the ongoing
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regulatory issues. because you challenge your questioners to do so, let me ask you a question. probing you for some detail. just over the last few hours, there was a joint report issued by the u.s. fdic, and your colleagues at the bank of england, talking about how to handle systemically important financial institutions. in this case the global ones and so many are in the united states and the u.k. and i for one was heartened by the idea that two important regulatory bodies will be discussing the right way for it. yet there is another set of regulatory bodies that has not been involved in the same way. if we look, for example at china or the eu, there are some
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questions that it raised and among them, whether the banks that are systemically important in other parts of the world could be or should be allowed to operate in other nations following a different set of regulatory standards. >> let me start with the height of the crisis when there was a meeting in tokyo and we flew over for meeting that lasted three hours. we had to stay overnight. the central bank governors had dinner. i said it would be a good idea if we had a discussion over dinner, make some use of the time in tokyo and they said good idea. what question the suggestion i said, why don't we talk about if one morning we went into the office and goldman sachs renne is up and said terribly sorry, things have gone badly wrong, we are gone bust. what would we do?
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everyone said this is joking. let's just enjoy a good dinner. i am glad to say that actually, particularly between the u.k. and the united states, the committee is taking this question of too important to feel very seriously and trying to ensure that all major institutions, banks or near banks have resolution plans so that the regulators around the world can work together within their respective national legal systems to resolve large banks. the key aim of this is to insure that people land to such institutions know they're not lending to the government with a guaranteed loan. they're taking a genuine financial risk. we have made enormous progress. the big challenge is that it is not practical to think that we would end up with a common legal framework which would be binding. what was relevant is we get to the point where at the holding
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company level it is possible to -- for groups to be resolved. and how we would handle problems of cross-border institutions. the one thing, the u.k. had a difficult role in this crisis. what we introduced was -- will not work easily for cross-border banks. we want this to better operate in international markets but we need a framework whereby these banks can be resolved and we're determined to get to that point. to my surprise we have made more progress than i would have expected. we have -- where on the way and that is a key part to the approach. >> let me join abbey in thinking
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you for those are marks and want to bring you to north america. as you noted, despite the monetary easing from the bank of england, the uk economy was flat. what more they think could the bank of england to and i wanted to know what you think, if there would be any gain in following the approach in canada or the u.s. in specifying how long interest rates would remain low. if you disagree with that, why? >> we do not believe in the bank of england that we have a crystal ball which enables us to foretell the future. so we simply do not know what we will be deciding six months, 12 years, -- 12 months, two years from now. what is important is to have sufficient transparency about how we will react to events as they unfold. we certainly do not want to want to leave vast
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uncertainty about our future actions. instead of saying interest rates will be low, but we would rather say is, we would rather talk about the actions in a way people are confident how we might react to events as they unfold. the proof of the success is that is that if you look at market interest rates, there is little difference in terms of what markets expect the yield curve to be, looking ahead, between those central banks willing to be more open about what they will do and those banks who do not talk about the future but how they would respond to events as they unfold. the other reason for doing that is that our committee structure in the bank of england comprises nine individuals, each of whom is accountable for their own actions, appears before parliament to explain their actions and has one vote. i only have one vote and i had been a minority of three or four
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occasions since i became governor. i do not think it is easy for us to pretend how the committee will behave in two or three years' time. what we should do is stay, let's be honest about it. no one knows what the future holds. we have to give the impression we have a very clear set of objectives, we have instruments to meet those objectives. what we will choose to do at any critical date in the future depends on the condition at the time. >> back to the economic outlook in the u.k. one of the things he stressed during your presentation was the importance of trade for the u.k. and yet over the last 12 months, the trade numbers have deteriorated. the act it gdp numbers -- the aggregate gdp numbers have not looked very good. yet there seems to be a bright
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spot in terms of the efficacy of the fls , the scheme to incentivize bank lending and i assume a good deal of that for domestic purposes. can you allow this american audience a brief description of how that program works and why you think it is affected? >> the backdrop is we have brought a flat out -- the export figures have been good to the rest of the world but not to the euro area. i did not myself want to put enormous weight on the published data for trade so far. they are always being revised. a number of occasions when people, at least in britain, say if only we knew three years ago with the revised data said now, we would get done nothing different. -- something different. we were struck that our bank
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fudning costs rose. so we felt we had to do something to great breathing space before we might see the impact. we created a scheme, a funding to lending scheme under which it said the bank of england would be willing to lend to banks and amount equal to the net increase in their lending to the real economy plus a percent of their pre-existing stock of loans. recalculate their lending to the real economy last august 1. 5% of that withouth strings and any increase in lending between then and the end of 2013. the interest rate we charge on loans goes down the more they expand their lending. we have to calibrate this carefully to give incentives to
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two groups of banks. those that are really expanding lending, we want them to expand even more. and those banks who are contracting lending because of the state of their balance sheet. typical of the state owned banks. we want them to have an incentive to contract their lending by less than they would otherwise have done. that explains the actual calibration of the scheme. we have been pleased by the take up. we think this won't fee d through to then activity until 2013. what it has already done, the existence has but to a sharp fall in bank funding costs already. that is already being seen. i would not much of the impact of this just by how much money banks borrow from us. but what has happened to bank funding. that is another factor that leads me to think -- who knows what the future holds unreasonable of you would mean we would not expect to see
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picketed the lending and investment. we would expect to see the squeeze on consumer spending ease and hoped it might find some way of making conditions in the euro area more conducive to an expansion of trade within europe. >> if the u.s. goes over the fiscal cliff, will it hit the u.k. into a triple dip recession? >> we have great confidence that one way or another -- [laughter] one way or another, the united states will find a way, if not of the voting going over the cliff, at least hanging by the a banker tips. i have always been impressed by the energy position did with
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this country. i'm confident in the end you will find a way of doing it. i'm never so sure -- >> even the eye is on the horizon or the fetus on the ground. i take your answer confidently. i want to ask about the libor scandals. in the wake of the alleged manipulation of libor, how difficult will it be built to design and regulate it replacement? >> there are two steps in the replacement, the modification of laboratory the first is to make sure there are some rules and regulations around the way in which reporting banks to submit their quotes and the rates they calai -- claim to be relevant to their ability to borrow. it means the market will for the first time be a regulated activity. the libor quote.
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in the short run, that will do a great deal. the real question in the longer- term as less obvious. the first thing that clearly has to be done is that if there is to be a series of activities using these reported rates, we know there will be times when markets will be so thin, liquidity will dry out. it will simply be impossible for people to report quotes for libor. and that is what happened in september 2007 and 2008. in those situations, there has to be a component of the legal contract that defines what the reporter rates is in that the the circumstances. and it will at best buys when those circumstances are deemed to have kicked in. -- identiy when those
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circumstances are deemed to have kicked in. we would favor some clear statement of the principles that should guide the construction of any of these reported rates. what we think will be wrong is that we in some sense to take responsibility for saying what the rate people should use is. people have this reporter rates, some of which might adequately be linked to. they should choose the rate that shoots -- that suits them. i suspect to maintain the integrity of markets, there will need to be some set of principles and methods say what reported rates have met those principles and then the market can choose from that according
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to their preferences. i did not think central banks want to get into the business of designating the rates people should use. >> i do have one more. since the crisis, there has been it dramatic improvement in the health of the u.k. banking system. for example, bank leverage has declined sharply from 55 to 25. chair oen capital has risen. yet we talk about the fact that the banks are improving their balance sheet yet not losing it to lend very much. the fls program we talked about is really aimed to offset that. if you were to contrast the situation in the u.k. versus the u.s. where we have had another
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outlet as well, very robust public debt markets were larger companies have been able to get the financing they need, even if the banks are not interested in lending, what sort of facilities have to take companies been able to avail themselves of in terms of the public market? >> very many. in the u.k., people often focus too much probably on the banking system as a source of finance. it is crucial in two markets. the market for small-business finance at for mortgage finance. where we do not have a fannie mae or freddie mac. it is one where the banking system is critical to the function of the mortgage market. those of the areas where it matters. for larger companies with access to the bond markets are equity markets, they have really hardly been affected. they built up quite large bottles of cash and they are issuing almost at record levels.
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it is interesting that right through this financial crisis, these markets have functioned extremely well all the way through occasional liquidity problems. this was a problem in large part of the bank's solvency. we needed to get to that. that does take time. and determination on the parts of governments, central banks, and regulators. i think we are well on the way and the funding for lending scheme will agree deal to help the two markets are highlighted. the bond and equity markets are certainly doing their bit. >> the bank of england will soon shift samir stewardship. what key economic and organizational challenges of do you think lie ahead? >> i am not sure if the
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challenges are any greater than the ones we have now. over the past two and a half years, we have created the financial policy committee. we put in place a primer for the potential regulation authority -- a framework for the pot handle regulation authority. it will be decided by three committees. we have already decided there will be any chief operating officer to leave the governor of the burden of managing much of the banks. that is something i would love wanted to do myself a year and a half ago. i knew if i found a good candidate, i could that persuaded this person the bank of england was absolutely the place to work as a coo and they would look me in the eye and say who will be a successor and i
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could not answer that. i'm confident we have a great coo and great governor. my wife said to me -- they'll miss you. six months downt he road. the to the to the tv screen and say he is very young -- then she looks to the tv screen and say he is very young. very good looking. immensely charming and very charismatic. i think he would do a great job and it will not miss me at all. -- they will not miss me at all. [laughter] [applause] >> taking very much. your modesty at the end is completely understand it -- thank you very much. your modesty in the end is completely.
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let me just say 2012 has been a very good year for the club. 2013 promises to be equally like full as well. we will have a talk by our own vice-chairman, bill dudley, and the presentation with the economic club leadership award. t me thank all of you and wish you a happy holiday season. a discussion from gene sperling. on this morning's "washington journal," we will look at the
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fiscal deadline this year. >> as a country basis at the upcoming fiscal deadline, a look at some of the fate -- of the challenges facing state governments. we will have live coverage from the u.s. chamber of commerce beginning at 9:00 a.m. eastern on c-span freak. here on c-span, a discussion about bonded for federal services and programs for older americans. it will be hosted by republicans on the senate committee for aging with live coverage at 10:00 a.m. eastern. >> national economic council director gene sperling says any deal on a must address the debt ceiling issue. he spoke at the center for american progress and answer questions. this is about 40 minutes.
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now it is my great privilege to introduce gene sperling, who is the director of the white house national economic council and assistant to the president for economic policy. gene also is a former senior fellow at the center for american progress where he wrote "the pro-growth progressive," where he talked a great deal about the connections between innovation, education, ensuring that we have an economy that works for everybody. i want to say that i am certain the administration -- there is nobody in the administration who is more focused on america's long-term competitiveness, its short-term competitiveness, its mid-term competitiveness. when the president is talking about his vision for the future, america maintaining its edge in the global economy, and how it also does right by all of its citizens, from its senior
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citizens to students to people who are dreaming about being the next generation of innovators, gene is at his side talking about the policies that will help achieve that, from higher education, k-12, ensuring that our universities are still leading and our citizens are well trained. when it comes to a subject like human capital, maybe not the best term for ensuring that our children are achieving their dreams, gene has been focused on that set of issues. not only here at cap but at brookings he did work on education with girls around the world. he has written extensively about education here in the united states. he is enmeshed in the debate around the fiscal cliff, but we brought him here today to talk about our long-term challenges and how we connect the dots, and our wide-ranging discussion helps set that up. with that, gene sperling.
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[applause] >> thank you very much, neera. it is intimidating to have followed your panel. i like much more when you get to talk first, be the first person to mention every idea, and then the panel's say, yes, as gene sperling said. [laughter] now i have to go after the president of harvard, jonathan marino, john hutchinson, susan molinari, who is partners with my wife on issues of child trafficking. she has a special place at our home. i know a lot has already been said. since i did not get to hear it
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all, i don't know whether i will be repeating it again. anyway, let me i'd like to start when we talk about economic policy, particularly in this area, by reminding ourselves, what is part of our goal for economic policy -- because you hear a lot of metrics on the gdp, on growth, on productivity, etc., as if those were the ends themselves --those are the means to our ends, and the ultimate goals of economic policy, which to me are, are we a nation in which the accident of your birth does not determine the outcome of your life, where there is a real chance for everybody to rise? are we in an economy where growth strengthens and broadens the middle-class, so there is not only security for the middle class but an ability that those from other countries, and those that are poor, can move up without pushing anybody out? three, are we in an economy and country where people who work
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hard and take responsibility for their lives can work with dignity, raise their children with dignity, and retire with dignity? those are our ultimate goals. everything we do is measured against those. innovation you can define many ways. you can define it as the commitment to combining technology and skills and other inputs to have bottomed out -- to have better methods and processes for productivity. you can define it as a commitment to fdr-like commitment to bold experimentation. or an investment in the building blocks for building a 21st century economy, education, research, and infrastructure. in the end, i believe if you are a progressive, the way that i believe we have to look at it is that it is fundamentally a commitment that we want to
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embrace change, and we want to make sure that it works in a way that furthers, not works against, those basic values. in addition, change, productivity that leads to hollowing out the middle class can give you the same productivity growth, but it does not meet our goals as a country, which is to be a country of shared prosperity and a broad middle class. my view, and the book i wrote back when, and more importantly, president obama's view, is that if you are a progressive, you need to be at the forefront, you need to be embracing change but shaping change so that it is meeting those basic progressive values we talked about. i think that the president well knows that we cannot assume that that type of push towards technology, globalization, innovation, however inevitable,
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will automatically lead to the type of shared growth we want, that there is potential to have those types of changes lead to winner-take-all outcomes that are not consistent with shared prosperity and, as he says, an economy with growth built to last. our question is, not how we put the brakes on, but how we put the engine on innovation and change, but we do so with the ultimate issue of whether it is promoting the fundamental sense of shared prosperity and a stronger and more inclusive middle-class. i think that the issue of the progressive taxation is not at all irrelevant to this. when you think again that we do have an economy that is capable of having more winner-take-all outcomes, in that context,
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progressive taxation is not about redistribution, it is not about populism, it is not about punishing success in any way, but what it really is is about a national commitment to essentially pay it forward. to recognize that those of us who have benefited most from the innovation of the past, who have benefited most from the investment of the past, have an obligation if we are doing well to pay it forward, to make sure that we are giving this generation and the next generation the same building blocks in terms of education, research, modern infrastructure so that they have the same chance to grow and prosper. in that sense, paying down the deficits while still investing in the building blocks of innovation is not about borrowing from the future. it is about investing in a richer and more prosperous future.
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i think that is the overall frame with which we go forward. i do believe that there has been a greater belief that we do have to embrace change, that the processes of innovation and productivity and technology and globalization are not things to be stopped, but things to be embraced and shaped towards the progress of the values we hold dear. now, i think one thing when you're talking about innovation, you are essentially, to me, talking about a commitment to evident innovation and accountability. the part of having innovation is the ability to test what is working and not working and being willing to marshal the various forces from technology to different incentives designed to make sure that you have a better outcome. again, i think this is another place where progressives should lead and not be fearful.
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that view of the evaluation, evidence-based change is behind the president's race to the top, is investing in innovation funds, proposals we have like career academies, home visits by nurses for at risk children, all these are based on a strong evaluation of what is working and a commitment to put more resources behind innovation and then continually test that innovation for results. that said, i do think that when we call for more accountability, more evidence- based evaluation, it is important that we lead, but it is also important that we do not allow programs that are for, let's say, poor children to somehow become the victims of a double higher standard. i have seen this too many times. when a research strategy for
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cancer goes awry, people say, let's evaluate it, let's figure out what we did wrong, and let's do it better in the future. they do not say, well, the whole idea of trying to cure cancer is just a waste of money, the federal government should not be involved in that. unfortunately, there are times when people talk about investments that help our poorest children or helping people in our toughest neighborhoods, some of our most intractable problems, dealing with young people rescued from trafficking, these are very difficult problems, and we should evaluate and see what works. we should also insist that there is not a double standard so that if an evaluation, a single evaluation, or even a couple evaluations, somehow show that a particular strategy has not worked well, that that is the motivation to do things better and smarter, not an excuse or reason to say that government has no business being
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involved in that endeavor. i think we need to be for change, accountability, evaluation, but not a tougher, higher double standard just when it comes to young people from the most disadvantaged and troubled environments. there is so much to talk about in the innovation area. and i'll just mention a few things that we are focused on, and then we can do some questions. one, on the area that i feel that you have been talking about, on a skilled workforce or whether and how much there is a skill gap -- i think this is a critical issue. i think that for us to have clear policies, we probably need to be a little bit better in the defining challenge. first of all, i do not think there is any question that the main reason we are having higher unemployment right now is not structural. it is fundamentally cyclical. it is fundamentally a lack of
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demand that is still in our economy as we recover from the great recession. that said, that awareness, that recognition ben bernanke and a former bush a chair have embraced, that our problems are about demand rather than structural, this should not undermine the fundamental importance of dealing with skills or that we may face temporary or future skills gaps. i think there are three reasons why we should be focused on this. number one, even the unemployment today that is fundamentally about cyclical demand, less strength in the economy, can easily become the next structural skills problem of the future. we know that one of the challenges we face right now in our economy is not just lowering unemployment but lowering long-term unemployment, and we allow legions of our fellow citizens to stay unemployed for one year or two years, we know from study after
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study, that they will have more trouble reestablishing their skills going forward. that would be a humanitarian crisis for us as a country, but also we would also be sitting by and letting a structural skills gap expand because we're not taking enough efforts right now to get people back to work and to deal with long-term unemployment. second, there is clearly some immediate skills gap issues. you hear it in engineers, welders, and we should be focused on that. third is the long-term issue, which is really, since you're talking about the future, it is less of a current skills gap and more of a supply side issue. we should believe that we have a large enough supply of skilled workers, the field of dreams notion, if we had that degree of skilled workers, it will help location of jobs come here.
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we will be more of a magnet for the high skilled jobs of the future. i think that when we are looking at this, we should, in our policy solutions, make sure that we are defining policies right so that we are having the right solutions. sometimes when people are saying skill gaps, they are talking about too few of the absolute top of the top engineers, technicians. those are issues that people often talk about, helping to address right now with high skilled immigration. other times they are talking about the overall supply of stem workers in our economy, stem, science, technology, engineering, mathematical workers. that is a broader issue. that can only be dealt with with larger issues in our education and training. then sometimes they are talking about skill gaps where there is just not strong enough connection between how we do worker training and the skills that are actually open in
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particular areas. all three of those are important skill gaps or skill issues, but they do not take with them the exact same policy solutions. as we move forward, i believe places like cap and others can help all of us by helping to define these issues and define which policies address them. i would suggest that we will be strongest when we have the larger skills compact. i think many people come from silicon valley and talk to us about the need for high skilled immigration, and i agree. i think we do need to do more on high skilled immigration. the president agrees. but it is a stronger case to make that to the american people, if that is one component of a strategy, one component, not just of a larger comprehensive immigration strategy, but one component of a larger skills strategy, which also talks about how we can increase the number of skilled workers coming from our
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country, from u.s. schools, from u.s. work forces, together, that is a skills compact that i think the country could easily get behind and support. i think that is highly important as we think about the skills issue going forward. i think some of the issues i heard talked about before are critical to that as well. what are we doing in the pipeline? what are we doing from the earliest ages to make sure that underrepresented groups are taking to science? why do we have the drop-off in the middle schools around young women? what are our long-term strategies? i think we have to attack this on all cylinders. we have to have an all of the above strategy. while we are doing the long- term strategy to have a greater supply of some workers at high skilled workers, we should not
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take our eye off what we can do in the short term. one of the most powerful statistics that came out of the president's science and technology council was the idea that you could have a significant effect on the number of workers we have if you just ensure that you had a higher graduation rate among those who declared a stem major in their freshman year. taking that from 40% to 60% would have a significant impact, and that is not about 20 years from now. that is about two or three years from now. i think we can attack this on the short and long term. the second issue on innovation, very important to us and this president, is on the overall issue of research and basic research. i think this is a critical issue for us. we as a country have long been committed to having a strong research agenda.
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we know that the areas where the private sector will underperform is on basic research and blue sky research. that is where nih, that is where arpa have come in. to push my head into the budget issues for just one second, i think there are a lot of people who come to talk to us at the white house who say, i care deeply about whether you are doing enough on energy and advanced manufacturing research, deeply about whether you are going to help n.i.h. push us to the next frontiers of alzheimer's research and other important biomedical research, and then say, this is not really my business -- i am not a budget person -- to worry about whether we're cutting too deeply in our discretionary domestic budget. what i have to say to folks is, you cannot pretend you care deeply about innovation and research and investing in early childhood and investing in science and stem education, if
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you are indifferent to whether or not we reduce our budget deficit by simply taking deeper and deeper cuts in the domestic discretionary budget. at some point, you get to a point where you are simply trading off between early childhood and biomedical research and higher education, and those are not cuts the american public wants us to make. when we talk about getting our fiscal discipline, our fiscal house in order, i want to remind people that when i was here in the early 1990's, one of the clarion calls, one of the reasons why people made that case was, if we had expanding deficits, it was not just that we would crowd out private capital, it was that we would crowd out public investment in the future, in our children, in modern infrastructure and innovation. when we decide we are going to cut spending, which we need to,
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as part of a larger deficit reduction agreement, those of you that care about innovation need to care about how you cut, how you reduce spending. we have already cut domestic discretionary spending to its lowest levels since the eisenhower administration as a percentage of our economy. that is something the president felt was necessary in these extraordinary times, but to cut another 10% or 15% as some would do, would make the proposals being suggested here become -- a moot point. i flag that for everybody. the third issue i will talk about before closing is manufacturing. this administration has made manufacturing a priority, and we are very aware that when you focus on manufacturing, there are some who will take a more classical view, economic view, and say, you cannot have a preference or you cannot care
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more about any particular part of the economy because then you're picking winners and losers, you're putting distortionary, deadweight loss on the economy. i wanted to make the economic case why we feel that is not right. first of all, let's consider research and development. research and development is an area where there is now strong bipartisan support that there are significant spillover benefits that go beyond the particular company doing research and development. we support our universities to do basic research, we give the r&d tax credit to our companies because we believe that there is a benefit in innovation and growth that happens to our economy that goes beyond a specific benefit to the individual company. i think that manufacturing for us done right, done smart has that same justification. number one, manufacturing does punch above its weight.
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90% of patents, 70% of private- sector research, 60% of exports come from manufacturing. secondly, location matters. studies show that when a major manufacturing plant comes into an area, the productivity of the nearby manufacturing also goes up. there are positive supply chain and ecosystem impacts that again go beyond the particular company. so, we have papers on this, but for those who take the knee- jerk view, the argument that anything that stresses advanced manufacturing or the importance of location is somehow just a political or distortionary economic policy, you should look at the increase in strong, academic evidence that suggests that location does matter, and
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that it is right as a matter of public policy to want to have more manufacturing locations in the united -- in the united states. note how many companies are moving their production and their design specialists together in the same buildings, on the floor. why? they think it matters. tellabs, they think it is important to have design and manufacturing together. the next point which the professor from harvard law made so well is that when you have an overall supply chain and manufacturing, when you suffer a period where that manufacturing base is eroded, it is not just a temporary thing. it affects our ability to compete for the next level of high-value-added projects. their example is in consumer electronics where it might have seemed at one point that it was
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not such a terrible thing if consumer electronics were produced somewhere else with lower-cost labor. what they are doing is that that eroded our ability, our base to compete for what became the more high-value-added consumer electronics of the future. if that is the test case for letting your manufacturing base become eroded, then i think we can feel positive that what happened on autos was the opposite side. the fact that the american automobile industry was saved or helped to save itself with the help of president obama and the workers and the people there, it is obviously part of the manufacturing success story in the united states now that may have saved over 1 million jobs, but i also think it is very important for the future. nobody doubts that the united states automobile industry is now positioned to compete for
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the future jobs, which would not have happened if we have let that entire supply chain become eroded. i always thought one of the most significant quotes was from alan mulalley at ford, because everything everybody would have been taught in their macro or microeconomic classes would have been -- if you had three main competitors and two of them went out of business, the one standing would have been stronger. they would be taking more market share. it would be more powerful and broader. it is striking than that of ford motor company's ceo said at the time, and i quote, "we believe if ge and chrysler would have gone into free-fall bankruptcy, they would have taken the supply base down and taken the industry down, plus maybe turned the u.s. recession into a depression."
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that is a teaching moment about the power of the overall innovative skill set, the supply chain, and what that means for our capacity to compete. when the company that would have been left standing thought they would have gone down as well. there is so much to say. i wanted to make these few points, talk a little bit about manufacturing, research, skills, and i'm very happy to take your questions going forward. [applause] >> i think we have time for a few questions. i will call on people. if you can wait until christine comes around with the microphone -- >> we are manufacturing investors in 20 states. my question goes to innovation. at what stage are you focusing on -- is it with respect to expansion or start-ups, and on an execution basis, what is the
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regional plan as far as our international strategy? >> look, for those of us who are in the government, where you do want to be a bit like the classic economic book is that you want to look for where we are under investing as a country or where we have too little capital as a country going to private sector enterprises. because individual private actors do not feel that they get the full benefit but we as a country would be richer if there were more investments in those areas. one of the things that we are trying to look at is, i think the expression has become, where are the valley of deaths? meaning where are those places where in the innovative process for companies, where they are not able to get the capital
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they need to be perhaps one of the fast-growing companies? the hard part at the government level is that you have to ask, in up -- is it a valley of death because it should be a valley of death, because it does not make sense for the private or public sector to be investing in companies like that, or is it the case where there really is a market failure? where it may not make sense for certain venture funds to invest in certain companies, but if we had a broader investment, you would have -- some would prosper and we as country would be better off. that is i think where we look for the type of tools to say, are there areas where it makes sense where we as a country can care more about how many small manufacturers have a chance to grow and expand and, even if
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there is a risk aversion in the capital markets, where it is just not a fad or trend of the day, there is a strong enough public purpose for us to go in there. that is something that we look at, we take very seriously, and it is something that we are having discussions with karen mills come up with the treasury department about. we are now going to be around for four more years. we are open and eager to get people's suggestions. on the regional strategy, i think one of the strong initiatives that the president did put forward was his national innovation hubs proposal. i think what was interesting there was that we proposed $1 billion so that we can do 15 or 20. when it did not look like congress was going to pass that, the president said to us, can you not put together enough money in the federal government to do one pilot? we did pass the hat and come up
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with $45 million. when we put that proposal forward, we received 13 partnerships, 13 tremendous collaborations. we were only able to work one, a collaboration in youngstown where its partners included not just case western but carnegie- mellon. the excitement about that, and also the excitement that you're doing something that is regional, where have pennsylvania, ohio, and the whole rust belt investing together, instead of the way things typically go, when it is a particular state or a particular city looking for that. i think considering that we have tested that, we saw there was enough interest that the 13 partnerships would apply for that, that really shows the promise of this strategy, which has been used in germany, these national manufacturing, innovation hubs. i think that is something that we will look to promote in a
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second term and expand on. >> over here. >> thank you. paul friedman with every child matters. we applaud you for your comments about the need not to have us fighting against money for children versus money for research and other vital needs in the domestic discretionary budget. but the question is, where do we find more revenue? have you considered taxes on stock transfers or stock transactions or other kinds of innovative -- carbon taxes, other approaches where we can find new revenue that will be possible for us to not fight amongst ourselves for important resources? >> it will shock you to know that i am not here to make news on new revenues. [laughter] we are busy fighting right now to make sure that we have a budget agreement that is very
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balanced, and i think part of that balance is obviously having enough incoming revenues together with smart entitlement savings -- that is the type of balance people talk about the most. the other type of balance is to make sure that you're putting together a package in a way that does not handcuff us, not only for creating jobs in the short term, but long-term investments. i think one of the things that i have stressed that you do not want to do is try to go further in deficit reduction in the way that house republican budget does, which is another $1 trillion in steep cuts, precisely in the areas of our government where we fund early childhood, where we fund biomedical research, where we fund the national science foundation, and some the other drivers of innovation and economic growth. i do think that we are -- a challenge for us going forward as country is in repairing the
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damage that was done fiscally from the great recession, how we make sure we are giving the confidence that we are bringing down our debts and deficits as a percentage of the economy and giving people more confidence in doing long-term investments. at the same time, we do not starve what has been so much a part of america's history, which is our willingness to invest in the future. that investment is in our children, all children, including poor children, in modern infrastructure, research, basic and blue sky research, and i think when we get beyond the challenge we face over these next few weeks, i think that is going to be a broader challenge we will face over the next decade. >> i think we have time for one more question, over here. as the question is coming, i
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want to say how much we support the president in his fight ensuring there is balance, and the president has been very strong on that issue. we at cap commend him. >> i am richard from trust mp. we are a biomedical company that helps doctors and nurses collaborate better with social media. i want to ask the question about crossing the valley of death. our company was very fortunate, we got a small amount of innovation funding, coming through from health care moneys. this is a broader question about the health care ecosystem. in silicon valley, if a company goes under, all the software engineers find a job in a matter of weeks. in biotech, you have allowed people with ph.d.s and people with specialized areas -- we do not have the same kind of resilience. it seems like part of the valley of death is part an issue about the ecosystem. you hear a lot about mobile health companies that are
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having trouble getting off the ground and getting things through quick enough. part of the valley of death is fda delicate -- fda regulation and telecom regulation. i was wondering if you could compare and contrast how we foster a more vibrant amelioration of the valley of death for biomedical sector? >> let me make a couple of points. number one, as you mentioned health care, i feel a bit obligated to say that there are probably few areas where innovation is going to be more important than health care. one of the points that the president makes repeatedly is that the only good solution in dealing with our health care challenge is doing things that lower health care expenditures while increasing the health value that people receive. other things you do are cutting or cost shifting.
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they are even raising costs to try to lower what is on the federal books. the thing that is best for our country is if we have the type of innovation and continue to push the type of innovation that lowers health care spending, not because you are cost shifting, but because you are showing that we can give better value at a lower-cost. i think for us, as much as there is the understandable focus on what the entitlement savings will be as part of a long-term budget, making sure that we are doing everything we can to expand and test and innovate with some of the reforms that are in the affordable care act, i hope it will be a focus going forward. i realize we have been through a political season where there has been a stress on whether it would survive or whether it
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would not survive. now we are past that. we know it is the law of land. there would be so much to gain and not from just only a bipartisan effort, but experts from the health community to look at which of these reforms are working, which of these innovations are working, because this is the true answer to our long-term health challenge. we have 40 -- when i left government the last time, there were 40 million people on medicare. in 2020, there will be 64 million. it will go up 60%. there'll be 24 million more. you cannot repeal the retirement of the baby boom era. you cannot repeal that. you do not want to provide less to people who have worked hard their whole life. the ultimate goal has to be against this type of innovation
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for health care. on biotechnology, i do not know if i can give you as specific an answer, other than say that i think there's a growing recognition that when you're looking for areas of promise in the united states over the next 10-20 years, that there is enormous promise in this area, not just and most importantly what it means for health and life outcomes, but for our economy, for jobs, for entrepreneurship, so it is an area where we are looking at very closely. it is an area where ideas about where you think that there is a negative valley of death in terms of capital -- it means that you get to a certain point in the formation of your company where you cannot get the financing you need. i think that is an area where we should be willing to look closely at, but with the appropriate rigor.
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>> ok. thank you so much, gene, for a great day. i want to thank susan molinari and the great partnership we have with harvard and google for a day that i hope will stimulate people and remind them of the importance of these investments in the coming weeks. thank you. [applause] >> on this morning's "washington journal," we continue our look at the fiscal cliff and what happens a gold buckle -- if the budget cuts take place. jim doyle on the effect on businesses. then at charles clarke will look at domestic program cuts. more about the issue, with the
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brookings institution and the ethics and policy center. "washington journal" live this morning at 7:00 eastern on c- span. now a discussion on a state of voter id laws and 2012 pope. we will hear from ohio secretary of state sessions thiswo session and we have to end at 5:00 so want to get started. we brought together a series of experts and leaders in the field to talk about the issue of integrity verses access in elections where a voter i.d. fits into this. don't think we could do better than the panel we have right now. i will let our moderator introduce our panel, many of
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whom you'll recognize. >> you guys are in for a trade. you could ask for a better panel to think through these issues of how to balance integrity and access. i will say a word about each of the panelists. we will hear brief presentations from each of them and we will have a more general conversation and i will try to save time for your questions at the end. natalie tennant is the secretary general of west virginia. she has also had more investigations and convictions for election violations than any other secretary in west virginia history and maybe we can talk about that later. about that later.

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